Value Added Tax (VAT) Guidelines: Russian Federation

Generally, the following supplies and services are taxable in Russia:

 

Generally, realization means:

 

For VAT purposes, all transaction types mentioned above are treated as realization – even where no remuner­ation is due.

 

Sale of goods (work, services) is only subject to VAT if it takes place inside the Russian Federation.

 

The place of supply of work (services) depends on the type thereof and is determined as follows:

 

If the taxpayer delivers several types of work (services) and the delivery might be classified as auxiliary with respect to the delivery of other (principal) work (services), it is not necessary to determine the delivery place for auxiliary work (services). They are deemed to be delivered at the place of delivery of the principal work (services).

 

Please note that the payment procedure with regard to works/services of foreign entities underwent some changes recently. This concerns especially services rendered by a foreign entity not related to a permanent establishment, but which are still subject to VAT, for example engineering services rendered by the headquarter abroad to a Russian customer. Until the resolution of the Constitutional Court of the Russian Federation No. 2518-O as of 24 November 2016 it was general practice – confirmed by several letters of the Russian Ministry of Finance – that the reverse charge mechanism shall be applied with regard to such services, even, if the foreign entity had a tax registration in Russia (e.g. due to a permanent establishment). In the afore mentioned resolu­tion the Constitutional Courts stated that such practice is not correct and that foreign entities having any sort of tax registration shall pay VAT themselves. Therefore, the practice changed, so that foreign entities having a representative office or a permanent establishment rendering for example engineering services through their head office had to charge and pay VAT themselves. As a consequence in several cases the reverse charge procedure was wrongfully applied resulting in respective tax risks both for the foreign entity and its customer. 

 

As of 1 October 2021 amendments to the Russian Tax Code entered into force, which restored largely the old practice. Therefore, if a foreign entity now renders works/services not through an existing permanent establish­ment or a branch to a Russian customer, that are subject to Russian VAT, the Russian customer shall apply the reverse charge procedure, even if a foreign legal entity in fact has a tax registration in Russia due to a perma­nent establishment, branch, representative office, bank account or immovable property. This means, that for example in case of engineering services rendered by the headquarter of a foreign legal entity abroad to a Russian customer, the Russian customer shall again apply the reverse charge procedure, when he pays for such services, even if the foreign legal entity has a tax registration in Russia. Only in case of foreign entities having a VAT registration for electronic services, the reverse charge procedure shall not be applied. As the correct treat­ment of such cases is not yet entirely clear, it is recommended to seek tax advice to clarify how to proceed with minimized risks.

 

The following VAT rates are applied presently. Three rates (0 percent, 10 percent and 20 percent) are basic rates and two rates of 10/110, and 20/120 are settlement rates. 

 

Where goods are imported to Russia and other areas under its jurisdiction, they are subject to import VAT in accordance with customs law of the Customs Union and the Russian customs law.

According to Russian VAT Act, VAT payers are:

 

In general, companies must be registered with tax authorities at the location of the company, at locations of its separate subdivisions and at locations of their respective real estate and vehicles.

 

The taxpayer identification number (INN and KPP) is assigned to an organization upon its registration with tax authorities. This taxpayer identification number is applied with respect to all types of taxes. The Russian tax law does not require separate tax registration, e.g. for VAT purposes.

 

Registration (de-registration) of a foreign company with tax authorities at place of its business in Russia is performed as follows:

 

A foreign company must file an application for registration with tax authorities within 30 calendar days after the start of its activity in Russia for all taxes.

Taxpayers must submit tax returns in electronic form to the tax authority where they are registered, using a telecommunication channel of the operator for electronic document circulation, not later than day 25 of the next month after the end of the tax period (quarterly). The tax return must be signed with a digital signature.

 

The responsible authority determining the exact scope and kind of information to be included in the VAT return from the sales and purchases registers, from the register of received and issued VAT invoices and from the issued VAT invoices is the Federal Taxation Service.

 

Foreign companies providing electronic services to Russian individuals are not obliged to issue VAT invoices.

Failure to submit to the tax authority a VAT return in electronic form via telecommunication channels (or sub­mission of a declaration in paper form) within a specified period shall result in a fine. The amount of the fine shall be 5 percent of the VAT amount not paid in due time, payable on the basis of this declaration, for each full or incomplete month from the date fixed for its submission, but not more than 30 percent of this VAT amount and not less than RUB 1,000.

 

Non-submission of the VAT return also results in the suspension of transactions on the taxpayer’s current bank accounts. Administrative sanctions (a warning or a fine ranging between RUB 300 and RUB 500) can be applied to company officers.

 

Non-payment or incomplete payment of the tax (mandatory charge) caused by an understatement of the tax base, other errors in the calculation of the tax (charge) liability or any other wrongful act (omission) is punish­able with of a fine of 20 percent up to 40 percent of the outstanding tax (charge) amount.

 

A breach of the obligation to withhold and/or to pay VAT as a tax agent is punishable with a fine of 20 percent up to 40 percent of the amount to be withheld and/or paid.

 

The entitlement to VAT offset can only be enabled, where

 

If the taxpayer has VAT or any other federal tax liabilities, or has outstanding penalty interest and/or a fine charged in respect to such taxes where the Russian Tax Code stipulates so, the tax authority is authorized to perform a setoff of the refundable VAT amount against such liability and outstanding penalty interest and/or fines without notice VAT offset is subject to statute of limitation of to an amount of 3 years (period).

 

The VAT amount on business trip expenses and on entertainment expenses deductible for profit tax purposes might be claimed as recoverable and subject to VAT offset.

 

The VAT amount charged for hotel services is claimed to be recoverable on the basis of the VAT invoice and documents evidencing payment of this amount as tax.

The VAT invoice (Schet-Faktura) is a document that forms the basis for claiming paid VAT amount as recover­able. Consequently, if the applicant has no VAT invoice or it is not declared properly in the relevant VAT invoice, the company loses its right to get refund from the treasury or the setoff of the VAT amount paid to the vendor of goods (products, work, services). 

 

A VAT invoice can be drawn and issued as a hardcopy and/or as an electronic document.

 

VAT invoices are the basis for claiming the VAT amount as recoverable that are charged by the vendor against the vendee, subject to compliance with the requirements of law.

 

VAT invoices can be issued as electronic documents upon the agreement between the counterparties to a transaction, provided that the counterparties have compatible equipment and possibilities to receive and process these VAT invoices considering the excepted formats and procedures.

 

If the company has a remote office notwithstanding its location, legal status (branch, representative office and other remote office) or the fact of having a separate balance sheet, the VAT amount must be paid and all re­ports must be filed for all remote offices exclusively where this Russian company is registered with tax authorities.

 

A foreign company that has several remote offices or permanent establishments in Russia has the discretion to choose the remote office or permanent establishment that will file VAT declarations and pay the total VAT amount where that office is registered with tax authorities in respect to all transactions of all Russian remote offices of this foreign company.